Kim Rothstein speaks publicly about the case for the first time, after her husband Scott Rothstein pleaded guilty to federal charges that he ran a $1.2 billion Ponzi scheme Wednesday, at the Federal Courthouse in Fort Lauderdale.

Amy Beth Bennett/Sun Sentinel/AP

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Fort Lauderdale, Fla.,

Among the high-flying lawyers in South Florida, Scott Rothstein always tried to fly a little higher, move a little faster, shine a little brighter.

That was before federal agents revealed last fall that one of Fort Lauderdale’s most flamboyant residents was living a giant lie.

On Wednesday, Mr. Rothstein appeared in the federal courthouse here, a few blocks from his now-shuttered law office, and pleaded guilty to running a $1.2 billion Ponzi scheme from 2005 to 2009.

He is charged with five counts of federal racketeering, money laundering, and wire fraud, and faces up to life in prison.

The attorney who appeared in the courtroom Wednesday was not the jovial, well-tailored host who partied with national politicians, sports stars, and south Florida power brokers. He shuffled into the courtroom, dressed in tan prison garb and wearing leg irons and handcuffs. When the judge asked him to raise his right hand to swear an oath to tell the truth, Rothstein had to raise both hands since they were shackled.

Ponzi scheme of fake legal settlements

Three months ago, Rothstein fled the US for Morocco in late October after wiring $16 million dollars overseas. Federal agents were closing in on his scam, and there were suggestions he might commit suicide. But he returned to south Florida soon after.

A month after he returned, he was arrested. Federal agents seized as much of his assets and property as they could locate. These included the cars, waterfront homes, an 87-foot yacht, 304 pieces of jewelry, bank accounts, and equity stakes in a long list of companies, including local restaurants. Agents even seized Rothstein’s American Express rewards points: 20,920,701 of them.

Federal agents are estimated to have found assets valued at about $100 million. That’s a long way from $1.2 billion.

“The rest of the money is in the Ponzi scheme,” said William Scherer, a local lawyer who has filed a lawsuit to recover money for Rothstein’s victims. “And he probably spent a large amount – living large and all that.”

Prosecutors say Rothstein specialized in selling investors a stake in confidential settlement agreements. The settlements were said to involve sensitive pre-litigation negotiations in embarrassing sexual harassment cases or whistle-blower cases that the parties wanted to keep quiet. The investments could be purchased at a discount and would be repaid to investors at full value over time.

But sometimes there were no settlement agreements and no real clients. Rothstein and others allegedly created false statement agreements, bank statements, assignments of settlement agreements and personal guarantees.

In one fraud, a counterfeit court order

In one instance, according to federal prosecutors, Rothstein defrauded actual clients who had hired his firm to file a lawsuit. Unbeknownst to the clients, Rothstein settled the suit, obligating the clients to pay $500,000 to the defendants.

Rothstein then created a fraudulent court order purportedly signed by a federal judge, prosecutors say. The order said that Rothstein and his clients had won the lawsuit and were owed $23 million. But it added that the defendants had transferred their funds to the Cayman Islands, making recovery difficult.

Rothstein then told his clients that to recover the funds they would need to post bonds to be held in a Rothstein-controlled trust account. The clients wired $57 million into the Rothstein account, according to court documents.

When the clients became anxious about the money, Rothstein allegedly created a false order from a federal magistrate mandating a later date for the return of the clients’ money.

Federal charges refer to “co-conspirators” who acted with Rothstein, but no one else has yet been indicted.

“We intend to pursue every lead,” US Attorney Jeffrey Sloman said, outside the courthouse. He said the government did not know where the rest of the $1.2 billion was and how much might be recovered.

Powerful political connections

Not all of Rothstein’s illicit gains went into his pocket. He had a reputation as an effective political fundraiser.

According to court documents, Rothstein paid large bonuses to employees at his law firm. Before receiving the bonuses, the employees were told to make significant contributions to political candidates in their own names. The maneuver was apparently designed to bypass campaign finance laws.

In August 2008, Governor Crist named Rothstein to the Judicial Nominating Commission for Florida’s Fourth District Court of Appeals. A signed photograph with Crist was among a recent auction of some of Rothstein’s possessions. “Scott, you are Amazing,” it says.